Socio-Economics & History Commentary

Italy is the Eurozone’s 3rd largest economy. It is also the 3rd largest sovereign bond issuer in the world (ie. government bonds market) behind America and Japan. When Italy goes down the Eurozone will crater! (emphasis mine)
–CEBR: Italy is ‘Bound To Default’!by http://www.telegraph.co.uk/Italy will likely default but Spain could scrape through, a leading think tank has warned, as the eurozone debt crisis continued its threat to claim its next two victims.–The Centre for Economics and Business Research (CEBR) said it had modelled good and bad scenarios for the two countries and Italy could not support its debt even if rates fall back unless the eurozone’s third-largest economy sharply increases growth. “Realistically, Italy is bound to default, but Spain may just get away without having to do so,” said the London-based consultancy.–Even though Italy has managed to run tight budgets – and plans to eliminate its deficit by 2014 – with its massive debt it won’t be able to escape if it can’t boost its growth rate, it said. It calculated Italy’s debt would rise from 128pc of annual output to 150pc by 2017 if bond yields stay above the current 6pc and growth remains stagnant. The country’s economy grew by just 0.1pc in the first quarter of the year.–“Even if the cost of borrowing goes back down to 4pc, their growth rate is so anaemic that we see the debt GDP ratio remaining at 123pc in 2018,” said the CEBR. Italian Prime Minister Silvio Berlusconi called for a growth action plan on Wednesday in an address to lawmakers.–The CEBR said the situation is better for Spain as its debt is much lower, and calculates that even under its bad scenario Madrid’s debt ratio would climb to no higher than 75pc of national output. “Fingers crossed but there is a real chance that Spain may avoid default and debt restructuring unless it gets dragged down by contagion,” said the consultancy.–It calculated that the maximum sustainable bond yields for weaker southern European countries whose competitiveness has been hit by staying in the euro is really 4-5pc, rather than the 6-7pc advanced by many analysts and the markets. The rate of return on Italian and Spanish 10-year bonds has surged above 6 percent in recent days, reiterated on Thursday as Spain was forced to pay sharply higher rates to sell €3.311bn euros in government bonds. The country sold €2.2bn (£1.9bn) of its three-year bond at an average yield of 4.813pc, up from 4.037pc the last time it was sold on June 2.

Signs of desperation by the Chinese government? How do they get out of their US$2T USD denominated reserves mess without causing global financial upheaval? Not a chance they can do it successfully. The foreign reserves are still rising because of their massive exports to America (and Europe). It is a question of how much they will lose when they dump the USD. 30%, 50% ?? Of course, it is financial Armageddon when they do dump the USD! I will not recommend that you wait around to find out. Got gold yet?
–China Joins Russia in Blasting U.S. BorrowingBy Bloomberg News China, the largest foreign investor in U.S. government securities, joined Russia in criticizing American policy makers for failing to ensure borrowing is reined in after a stopgap deal to raise the nation’s debt limit. People’s Bank of China Governor Zhou Xiaochuan said China’scentral bank will monitor U.S. efforts to tackle its debt, and state-run Xinhua News Agency blasted what it called the“madcap” brinksmanship of American lawmakers. Russian Prime Minister Vladimir Putin said two days ago that the U.S. is in a way “leeching on the world economy.”–The comments reflect concern that the U.S. may lose its AAA sovereign rating after President Barack Obama and Congress put off decisions on spending cuts and tax increases to assure enactment of a boost in borrowing authority. China and Russia, holding a total $1.28 trillion of Treasuries, have lost nothing so far in the wake of a rally in the securities this year.–“It’s probably frustration more than anything else for China,” said Brian Jackson, a senior strategist at Royal Bank of Canada in Hong Kong. While the nation has concerns, “they realize there’s not a lot of options for them out there and so they need to keep buying Treasuries.”–China held $1.16 trillion of Treasuries as of May, U.S. Treasury Department data show. The nation has accumulated the holdings as a by-product of holding down the value of its currency, a policy U.S. officials have said gives China an unfair advantage in trade.….China’s central bank welcomes this week’s legislation that raised the U.S. debt limit, preventing a default, and will“closely observe” the implementation, Zhou said in a statement on the central bank’s website today. Xinhua said the move“failed to defuse Washington’s debt bomb for good,” in a commentary dated yesterday. ….“They are living beyond their means and transferring part of the problems onto the world economy,” Putin told a youth camp at Lake Seliger outside Moscow Aug. 1. “In a way, they are leeching on the world economy.” …China’s Dagong Global Credit Rating Co. today cut its grade for the U.S. to A from A+ with a negative outlook. “China hopes the U.S. administration and the Congress would take responsible policy measures to handle its debt issue,” Zhou said. He highlighted the global role of U.S. Treasuries, saying that any “large fluctuations and uncertainties” in the market for the securities would undermine financial stability and hinder the world economic recovery.….‘Madcap Farce’The Xinhua commentary said that the higher debt ceiling and plans to reduce spending were not enough to make any sizable dent in the nation’s fiscal burden. It referred to a “madcap farce of brinksmanship” before the agreement was reached. A previous Xinhua commentary on clashes between Republicans and Democrats said that “the ugliest part of the saga is that the well-being of many other countries is also in the impact zone when the donkey and the elephant fight,” referring to the symbols often used for the Democratic and Republican parties.….The Asian nation will continue to “seek diversification in the management of reserve assets, strengthen risk management, and minimize the negative impacts of the fluctuations in the international financial market on the Chinese economy,” Zhou said. China will also take “effective measures to maintain relatively rapid growth to safeguard economic and financial stability,” he added.

The FedRes is an Illuminist bank. It creates money out of thin air and lends it out. What actually happens is that they just enter the number needed into their computer system and the money is created! They then use it to buy US government bonds ie. QE! The American people must pay these loans back to the FedRes plus interest!
–Rep. Paul introduces bill to cancel $1.6T in debt held by Federal ReserveBy Pete Kasperowicz, http://thehill.com/Rep. Ron Paul on Monday introduced legislation that would lower the federal government’s debt by canceling the roughly $1.6 trillion in debt held by the Federal Reserve. Paul has argued for the last few weeks that the idea represents a quick way to make the growing fiscal crisis more manageable. Under his bill, H.R. 2768, the $1.6 trillion that the Treasury owes to the Federal Reserve would disappear.–The Federal Reserve began buying Treasury bonds in earnest late last year as part of its effort to keep long-term interest rates down. But Paul has argued that Fed purchases of Treasury debt represent a debt that the government owes to itself, and one that also leads to an unwanted and inflationary increase in the money supply. Paul has also said the Fed is allowing the federal government to continue a spending binge it otherwise would not be able to afford, and is forcing the Fed to print money to keep up.–“If the federal government cannot cut spending and bring the budget back into balance, the Fed undoubtedly will be forced to simply monetize trillions of dollars in Treasury debt, which is nothing more than a stealth form of default,” Paul said back in May.–Paul is highly critical of the debt-ceiling agreement that the House approved Monday, and said that rather than require real cuts in spending, the bill mostly cuts planned spending levels in the future. According to the legislation, discretionary spending in 2012 would be just $7 billion less than in 2011, and in 2013 it would be just $3 billion less than 2011 before allowing increases above 2011 levels.

The smart money has been accumulating physical gold for some time now. The sheeple are still pretty much asleep. By the time they wake up, the stampede will have started and the sheeple will once again be caught buying at exorbitant prices near the top! Gold is going to at least US$10,000/oz ! Silver US$300/oz ! The flight from fiat currencies to hard asset gold has started. Worldwide currency debasement is the order of the day!
–Emerging world buys $10 bln in gold as West wobblesBy Amanda Cooper, Reuters* Thailand adds nearly 19 T to reserves in June -IMF * Russia buys, Kazakhstan makes third buy of 2011LONDON, Aug 3 (Reuters) – Central banks of emerging market countries such as Korea and Thailand have added more than $10 billion of gold to their reserves this year in a sign of waning faith in the West’s benchmark bonds and currencies like the dollar and the euro.– International Monetary Fund data for June on Wednesday showed Thailand bought gold for the second time this year, raising its reserves by nearly 19 tonnes to over 127 tonnes, while Russia bought another 5.85 tonnes, bringing its reserves to 836.7 tonnes, the world’s eighth largest official stash of the metal. –So far in 2011, emerging market central banks have bought nearly 180 tonnes of gold, more than double the roughly 73 tonnes purchased by central banks globally in the whole of 2010. – The spot price of gold has risen by more than 17 percent this year to a record $1,672.65 an ounce, driven chiefly by investor concerns over the impact on the developed world’s economy of its debt burdens and sluggish growth. –Mexico has been the largest buyer of gold in the year to date, with $5.3 billion worth of purchases, or 98 tonnes of gold, followed by Russia, which has bought 48 tonnes, worth $2.6 billion at current prices. Earlier this week, Korea confirmed it had bought 25 tonnes of gold in June and July. –“Central banks evidently do not regard the price level as too high and are diversifying their currency reserves. This was the first purchase of gold for the Korean central bank in over ten years,” said Commerzbank metals analyst Daniel Briesemann.–Central Banks Join Rush to Goldby Liam Pleven, Se Young Lee and In-Soo Nam, http://wsj.com/Central banks are ramping up their gold buying as they seek to diversify their reserves away from the dollar and other beleaguered currencies. South Korea became the latest government to disclose a big bullion purchase, saying Tuesday that it recently bought 25 metric tons – more than doubling its holdings to 39 metric tons. Mexico, Russia and Thailand have also been major buyers in 2011.–This year, governments have almost tripled their net gold purchases, increasing their holdings by 203.5 metric tons this year, up from a 76-metric ton rise last year, according to the World Gold Council, an industry group backed by miners.–The demand marks a major shift in central banks’ thinking about gold. Increasingly, they see bullion as protection against risks posed by declining paper currencies and global economic upheaval, and their vast resources and conservative bent make them a powerful force in the gold market.–While gold is an asset that does not generate income, that shortcoming is less glaring among historically low interest rates. Before 2010, governments had on balance been shedding their bullion for two decades, during which gold was seen by some as a relic. According to data from GFMS Ltd., a metals consultancy, 1988 was the last year that official holdings increased.–“We definitely have seen a sea change” in central bank attitudes toward gold, said David Greely, chief commodities strategist at Goldman Sachs Group. Central bank buying provides “longer-term support for gold prices,” he said.

Taxi drivers run from teargas during clashes on the island of Crete, Greece. Photograph: Image Photo Services/AP

Will austerity measures work in Greece? I don’t think so! It is driving up unemployment and exacerbating the economic depression. Greeks are now silently bailing out of their banks. How long before the IMF and ECB talk about a 3rd bailout? It is too late. The sovereign debt collapse will start in the PIIGS, spread to UK, Japan and finally America. We will see a collapse of the Euro, UKP, JPY and USD. I do not expect other fiat currencies to survive as competitive devaluations will stoke hyperinflation!
–Greece in panic as it faces change of Homeric proportionsby Aditya Chakrabortty, guardian.co.ukFear is driving a silent bank run in Greece – but some see the government’s austerity plans as a chance to transform–In one of the biggest banks in the centre of Athens a clerk is explaining how his savers have been thronging to pull out their cash. Wary of giving his name, he glances around the marble-floored, wood-panelled foyer before pulling out a slim A4-sized folder. It is about the size of a small safety-deposit box – and those, ever since the financial crisis hit Greece 18 months ago, have become the most sought-after financial products in the country. Worried about whether the banks will stay in business, Greeks have been taking their life savings out of accounts and sticking them in metal slits in basement vaults.–The boxes are so popular that the bank has doubled the rent on them in the past year – and still every day between five and 10 customers request one. This bank ran out of spares months ago. The clerk leans over: “I’ve been working in a bank for 31 years, and I’ve never seen a panic like this.”–Official figures back him up. In May alone, almost €5bn (£4.4bn) was pulled out of Greek deposits, as part of what analysts describe as a “silent bank run”. This version is also disorderly and jittery, just not as obvious. Customers do not form long queues outside branches, they simply squirrel out as much as they can. Some of that money will have been used to pay debts or supplement incomes, of course, but bankers put the sheer volume of withdrawals down to a general fear about the outlook for Greece, one that runs all the way from the humble rainy-day saver to the really big money.–‘Clueless’ government“Every time the markets move, I get phone calls,” says an Athens-based fund manager. “They’re from investors asking: ‘How can I get my money out of the country?’ “–One senior investment banker is more blunt: “People are scared that the government doesn’t know what the fuck it’s doing.” He tells a story about an acquaintance who took out €30,000, wrapped it in a bag and stashed it in his garage. “The bag had previously had some food inside,” he says. “So it attracted rats, who ate the notes.”–Bags of money in garages, frightened savers fleeing banks and even the country: these aren’t the sort of stories you associate with a comparatively-prosperous European country, but with a developing one facing a life-or-death economic crash. The fact that they are now emerging from Greece not only indicates the scale of financial distress, it suggests something else: Greece today looks like parts of Latin America in the worst moments of its financial crisis.–In an echo of the days of Jim Callaghan, the International Monetary Fund is back in Europe, doing what it is more accustomed to doing in Buenos Aires or Brasilia: making emergency loans and telling the government how to run its economy. What is more, the scale of the changes an overborrowed Athens is now making are so vast and so rapid that they will leave Greece looking like a different country.–The government itself describes its plan to slash public spending and jack up taxes as one of the most ambitious deficit-reduction programmes in the world. But what often goes missing from this discussion of a fiscal crash-landing is the impact on the lives of citizens who have precious little time to adjust. When salaries of civil servants are slashed by up to 30% within a few months, as happened last year, and over 20% of public-sector workers face unemployment within the next four years – plus whole swathes of national assets are to be privatised before Christmas, with more job losses doubtless to follow – then you are talking about a wholesale transformation of a workforce.–… for the full article click here!

The USD-JPY was flirting with its lows in the 76.xx region. With such an unfavorable exchange rate, Japan’s economy will stagnate and even crater. Jobs will be sucked out of Japan into other parts of Asia (mainly China IMO). The BOJ worried about this (and the ongoing earthquake/tsunami disaster rebuilding) has intervened massively to weaken the Yen. They have their work cut out for them. Fear is spreading of a currency crisis involving the Euro and USD. Flight out of these currencies are boosting the value of SFR and JPY. What good is a strong currency when there are no jobs and no economic activity? Eventually, everyone will flee to gold. Central banks will start to think about a revaluation of the price of gold in their currency (effectively a devaluation against all currencies) when their intervention in the forex market fails!
–US-Japan Open Currency Warfare: “This Is Just The Beginning”!by Tyler Durden,http://www.zerohedge.com/ According to Credit Suisse, this is just the beginning of Transpacific central banking warfare. Per Dow Jones: “The Japanese Ministry of Finance’s JPY-selling operation Thursday may be the first in a series of interventions over the coming weeks to curb further rises in the unit, and may have come Thursday in part as the Swiss National Bank’s move Wednesday to weaken its own currency made it easier for Japan also to step in, says Koji Fukaya, director of fixed income and global foreign exchange research at Credit Suisse. – “This may be the start of a number of actions, depending on the yen moves in the weeks ahead,” Fukaya says. The SNB’s move Wednesday means Japan’s own move “could be considered as a kind of coordinated action” in response to broad USD weakness, he says. As traders say the MOF has so far sold under Y500 billion, Fukaya says the total size ahead could rise as high as Y2 trillion, though the move Thursday should be enough to send USD/JPY above 79.00 later, where it should stabilize in coming sessions. The pair is now at 78.32, from 77.10 earlier.” To anyone trading in these 100% correlated markets, which are now nothing but a battleground for those who yield the global electronic fiat printing presses, good luck. – One thing is certain: this latest attempt by the feeble BOJ to take on the Chairsatan is doomed to failure, as confirmed by the Bloomberg chart showing the “effect” of the last two such interventions:

The Swiss National Bank and Bank of Japan are conducting operations to weaken their currencies massively. Both central banks are feeling the negative impacts of their strong currencies on their economies. The era of competitive devaluation is here. No fiat curreny is safe. When the USD dives much lower it affects every single country.
–

In Asia, all eyes are on the Chinese RMB. If the Chinese allows a sudden and steep appreciation of the RMB against the USD, it will crater their economy and raise unemployment. Think about the tens of millions of Chinese peasants earning slave wages who will be out of work. It is a recipe for social unrest and violence. The Chinese will only allow the RMB to appreciate so much. Thereafter they will hold the forex line ie: follow the USD down in competitive devaluation. This will affect the rest of Asia. An even weaker RMB will drive jobs into China and cause economic stagnation in the rest of Asia. In the end, all fiat currencies will go down the toilet bowl via competitive devaluations! Got gold yet?